Figures don’t lie but …

President Nicolas Sarkozy has been in power for 100 days and I still have not figured out how his economic policies are going to create jobs and spark economic growth.

France’s conservative daily Le Figaro today runs an article about how much more money the wealth tax or ISF (impôt sur la fortune) has already brought in this year: 4.1 billion euros, that is 720 million more than last year. Reading Le Figaro, one gets the impression this is another sign of fiscal injustice. The paper goes on to complain more pain is to come because the figures “do not take into account the declarations filled out in July and August concerning people living in Monaco, Europe and the rest of the world.  Nowhere does Le Figaro say that if the wealthy are paying more tax, it is because they are making more money. 

But not to worry.  Things will be better for the rich next year. Before President Sarkozy went on holiday, he had a law voted which lowers the ceiling for the ISF tax from 60% to 50%. The July 26 vote also increased tax deductions which can be made on a home from 20% to 30%.  The wealthy will also be able to deduct 75% of their investments in small or medium sized firms (known as PME or petits et moyen entreprises) for amounts up to 500 thousand euros. The result is fewer people will be paying the ISF and those that will, will pay less. 

The tax breaks will cost France 13.8 billion euros a year.

The Sick and the Old Can Pay  

On the same page, Le Figaro runs an article on the difficulty the government faces dealing with the deficit in the national health care system.  The deficit has reached twelve billion euros and increases two billion every year. Oh, dear, where can we possibly find the money? 

The government has several cool ideas which avoid questioning the reduction in taxes for the wealthy. For example, if you see a doctor which is not your regular, you will be reimbursed only half the visit rather than the 70% reimbursement you get when you see your declared GP.  This figure is down from 90% reimbursement a few years ago.  Pressure is also on doctors to reduce the amount of medicine they prescribe and the Ministry of Health is monitoring. 

Another idea in the works is to get people to work longer because, complains Le Figaro, French employees “go on retirement as soon as possible”.  Silly French! The government is going to end a system where those who retire before the age of 65 get a special tax break. That will teach them. 

Ok, so far we have the sick and the elderly paying more to make up for less tax on the rich. 

“Work More to Earn More” 

But the government has another joker up its sleeve: the sales tax or value-added-tax, VAT.  Presently at 19.5 percent, the idea was floated around of raising it to a super ‘social’ VAT of 25%.  This is a true show of solidarity.  The poor unemployed mother of four will be paying the same tax as the Bank CEO where she has an empty account when they buy butter and milk. 

I’m not sure where taxing the poor and sparing the rich has produced economic growth?  France was hoping for growth of 2.5% percent this year.  Specialists are saying they will be lucky to reach 1.8% while the rest of the world is doing 5%. 

The idea for economic growth is to create jobs.  Starting October 1, there will be no income tax on overtime which is anything beyond 35 hours while employers will not have to pay the national health tax on those hours.  It seems to me this will create more lay offs than jobs. 

What is to stop an employer with 200 employees from firing 40 and having the other 160 work overtime tax free?  Production costs will come down the amount not paid on the labor of forty people being done in over time labor.  

Sarkozy’s first 100 days in office remain a fiscal enigma to me.